Risk management has become a very important part of running
a business. It is a subject that should be of interest to
all expatriates whether they run their own business or work
as employees of a company or organisation. This is because
if something goes wrong their business can go under or they
can lose their jobs. In its simplest form risk management
means identifying the risks to a business, analysing them
and managing them. The concept of business continuity management
came into the mainstream after two particular events, the
feared millennium bug and terrorist attacks on the World Trade
Center in 2001. These events got large companies to realise
how important it was to have contingency plans in place to
ensure they could survive in a worst case scenario.
Many large companies now have sophisticated plans in place
that include IT backup, communications systems back-up, ready-to-use
command centres, contingency supply chains and much more.
Some companies stage mock disaster situations to test their
readiness to react.
What is the relevance to Bali?
If you run a small business, whether it be a shop, restaurant,
or in manufacturing and export, having a plan is just as important
to you as it is to the directors of a multinational company
in London or New York. Many readers will have had first hand
experience of what happens to a business when disaster strikes
such as the bombings, SARS etc. Some are well-adjusted to
cope should similar events occur again. A few of my previous
articles have addressed the issue and I have frequently reminded
people to always be prepared and never to put all eggs in
one basket. While those articles focussed on events that affected
most people in Bali in one way or another, there are actually
many other things that could go wrong.
So what could go wrong?
As already stated, Bali has already suffered from traumas
such as bombings, SARS etc., but there are many other things
that could seriously harm or destroy a business. Here are
a few examples:
- death or critical illness of yourself or a key employee
- labour disruption
- loss of communications (telephone, IT etc.)
- civil disturbance
- a bird flu epidemic (could have a devastating effect
on tourism)
- fire
- flood
- major earthquake
- major volcanic eruption
- tsunami (big ones have recently struck Sumatra and
Java)
- adverse changes to the laws affecting businesses
or foreigners
- loss of a major customer
- loss of critical suppliers
- changes in market patterns
- competition from other markets (eg. Vietnam, China)
You can probably think of many more and it would be a good
idea to sit down and add them to the list.
So what can be done?
Faced with such a daunting list and Murphy’s Law (if
something can go wrong it probably will!), it may be tempting
to think ‘why bother’? But humans are basically
enterprising and most will rise to the challenge. The important
thing is to recognise the risks and have a plan in place to
deal with them. There should be a solution or course of action
for every item in the list. The solutions may vary from business
to business but they could include:
- having adequate life and critical illness insurance in place
- making sure your property and business is insured against
all risks
- contingency plans to keep customers supplied
- contingency plans to maintain the supply chain
- alternative communication channels
- full back-up in a different location of all data
- ongoing research to keep in touch with changing consumer
demands
Good planning also entails maintaining healthy cash reserves.
Such reserves are essential to keep the business running,
ensure employees are paid etc. during a period when income
is reduced or non-existent. Having healthy reserves can make
the difference between surviving a crisis and going under.
What if you do not run a business?
Many of the same principles apply if you are simply employed
and are not responsible for the business. While your assets
may be intact your ongoing income may not be. Hence the importance
again of being adequately insured and of having a plan of
action in case your job disappears overnight. Again, it is
essential to have a safe and accessible cash reserve to tide
you over until you find another job. This should be kept separate
from your longer term financial assets such as investment
and pension plans.
Everyone in business, and probably most people in employment,
will say they are busy. The theory goes that if you have time
available, work will fill it up. Performing tasks that do
not produce visible income tend to get sidelined but failure
to address issues that could affect your business or job could
prove very costly and even disastrous. A little time invested
in contingency planning, including financial planning, can
make the difference between surviving and prospering or going
under. It also buys something which has no measurable financial
benefit but a major psychological one and that is peace of
mind!
Colin Bloodworth is a senior financial adviser with Financial
Partners International. The views expressed are his own. If
you have any questions relating to personal finance you may
contact him at 021 520 8099 or
colin.bloodworth@financial-partners.biz
